Technology has and still continues to play a vital role in the development and advancement of African economies at large. Constantly reinforcing regional trends in business, investment, opportunities and modernization, which accelerates globalization in developing countries. Lean funding options available to tech start-ups in Nigeria, Africa’s largest economy may be making it difficult to replicate innovation trends swiftly redefining the global economic landscape.
As the world transits to a digital economy, start-ups are leveraging technology to offer innovative products and services to a wider array of consumers who are digital savvy.However, this trend may be subdued in Nigeria, as the challenge of sourcing start-up capital keeps technology driven businesses at ground level longer than expected. These ICT tech startups die before their second birthday due to paucity of funds.Nigerian financial institutions and banks are not seeing the prospects of investing in these startups. Davies of PriceWaterhouseCoopers (PWC), a consulting firm said,”Nigerian investors have grown over time to have a penchant for investments like fixed income instruments, at the detriment of ICT investments because, “they consider tech investments as risk-laden and do not understand that they can invest N1 million and in the near future get N100 million in returns.” They (Banks) are yet to understand the concept of investing in ICT start ups.
In the same light, Raphel Afaedor, co-founder of Supermartng, an online grocery store, says “banks are only alive to sectors with quantifiable collateral and are not convinced that tech firms are profitable enough.”Nigeria Bank of Industry in conjunction with other government agencies have the mandate to grow start ups in Nigeria. BOI hasn’t met these objectives in empowering the ICT start ups. Interaction with ICT stakeholders,especially those in software development industry are of the opinion that the Nigerian banking industry doesn’t understand the concept of software development and the need to fund them either as loan, venture capital or corporate social responsibility. Mr. Bimbo Abioye, Managing Director of FinTrak Software “With funds at our disposal, we can take on Africa. We can effectively do that. But banking in Nigeria we do more of brick and mortar banking, they don’t understand software development. Bank of Industry doesn’t see software as an Industry but they are busy pursuing tailors and brick makers”. He said. In the same light, Chuma Ezri, head of e-business at First Bank of Nigeria (FBN) buttressed this notion “Banks are not naturally wired to finance start-ups but given the peculiarity of our business terrain, we support some of them and engage them beyond funding, by aiding them to grow sustainably,” he said.
Many countries have escaped econonomic obscurity via ICT and strt up funding. In line with this thought, the Adebayo Shittu, minister of information and communication technology opined during his visit to CC Hub in Yaba “As you all know, the ICT innovation is powering economies across the globe, creating employments and wealth. It is impacting on the way we live and the way we do businesses; the Buhari administration is at the forefront of diversifying our economy, Government is resolved to develop the ICT sector through Local Content initiative. Government will continually support all ICT hubs across the country because it is a veritable platform to achieve our ICT objectives.” As we know that one of the numerous challenges that young ICT start up have is funding. These youths are vibrant and bursting with energies, what they need is funding to put theses creative energies in positive use. Bank of industry haven’t yet understood the impact the of ICT start up to the economy. There seems to be a disconnect between the ministry of information and communication technology and that of finance on how to go about this.
A look at the bank’s wenbsite shows the requirement that they have shows that ICT start ups isn’t their scope neither are they are not in a haste to incubate techprenuers nor do they understand the impact of ICT in the economy. The first requirement is that; The Bank of Industry (BOI) targets the industrial sector of the economy. This has conveniently sidelined the ICT startup. This is because he is in the service sector not the industrial sector. The second requirement for obtained a credit from BOI is that The Bank of Industry finances plant and equipment. This has put the software developer in a box. The software developer doesn’t have a plant,but he uses a lab. Technically, the ICT research and development can never apply for this facility.
In some African countries , banks have invested in ICT start ups. A country like South Africa has seen their indigenous banks invest in the ICT start up. They understood that the future is in ICT not on fossil fuel or minerals. Standard Bank invested in tech start-ups in South Africa. The bank unveiled two major incubators, the Business Incubator and Technical Incubator. These incubators are where test can be made ,software developed , and deployed. This is with personal guidance from the bank’s innovation and enterprise development partners. Nigerian banks can key into this arrangement.partnership with relevant government agencies should be created. These are many templates Nigerian banks can use. Venture capital/Partnership or credit facility arrangement. Also, in the United States,major American banks have invested in 30 tech companies since 2009, according to CB Insights data. Out of the six banks, Citigroup has been the most active primarily through its Citi Ventures, which has invested in tech startups ranging from Betterment, Jumio and Square. Goldman Sachs has already ventured into financial tech startup with thematic investments across payments technology and big data finance. These are strides that banks are making in other climes.
Online and ICT start ups has the potentials of turning the economy around. The earlier the financial institutions in Nigeria start keying into this evolving trend the better. Most foreign firms have seen the potentials and are keyed into it. A good example is an indigenous online shopping site , Jumia which was bought by Rocket Internet Group. Rocket Internet’s Jumia, the Amazon clone in Africa is the clear winner today as of today because there are information reaching us that the global online Giant Amazon is planning to acquire Jumia and Kaymu. This deal is worth million and Nigerian banks are losing the greater chunk in their own domain! We have numerous success stories from Hutbay(online real estate firm) to Jobberman (online HR solution firm) BudgIT ( a budget software) ,Autom8 (a location based solution) and many others that have turned mega or been bought by foreign firms.
The inability and short sightedness of Nigerian banks to understand that there is a future in ICT start ups and partner with them in terms of credit facility and also buying stakes in their ventures as a capitalist is worrisome. Stakeholders like Jason Njoku, founder of IrokoTV, the largest online digital distributor of African movies online says it is quite unfortunate that tech startups with potentials do not get financial support in Nigeria. “Nobody in Nigeria wanted to talk to me about funding when IrokoTv started,” Njoku said.IrokoTV, the world’s largest online catalog of Nollywood movies is worth about $80million, according to Njoku.“It hurts me to know that the value of such a company will not go to Nigerians because they refuse to invest. By implication, all our investors are foreign,I would suggest that banks find startups that need help and get there early instead of sponsoring programes like ‘African start-ups’ on CNN when Nigerian start-up companies are looking for just 1 or 2 million Naira to get their businesses rolling,” ” Njoku said.
As Nigeria is moving away from import dependent and crude oil economy to knowledge ICT based economy , it is right that banks change their business model and approach to ICT sector. Failure to do so will have them having the short end of the stick.
Mary Ebele Uwalaka